No Additions Permitted u/s 153A without Incriminating Material found during Search: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that no additions are permitted under Section 153A of the Income Tax Act,1961 without incriminating material found during a search.

Dynamic Infraprojects Private Limited,the appellant-assessee,underwent a search and seizure operation on November 12, 2013, under Section 132 of the Act, conducted along with cases involving the Eminent Group. Following this, the Assessing Officer (AO) issued a notice under Section 153A on August 12, 2015.

The assessee responded by filing a return of income on November 17, 2015, declaring a total income of Rs. 5,148. Subsequent notices under Sections 143(2) and 142(1) were issued, accompanied by a questionnaire, resulting in the AO completing the assessment.

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In the final order, the AO made three key additions: (i) an amount of Rs. 15,28,785, representing 10% of the expenses claimed in the profit and loss account; (ii) an addition of Rs. 53,51,000 under Section 68 for unsecured loans; and (iii) an addition of Rs. 13,00,000 under Section 68 based on advances received from customers.

The assessee contested these additions before the Commissioner of Income Tax (Appeals) [CIT(A)], who, by order dated March 23, 2023, partially allowed the appeal.

Before the tribunal assessee argued that the assessment order under Section 153A/144 should be quashed, as no incriminating material had been found during the search to substantiate these additions. The counsel for the assessee cited Rule 27 of the ITAT Rules, 1963, and relied on the Supreme Court’s judgment in Pr. CIT vs. Abhisar Buildwell Pvt. Ltd. (2024) 2 SCC 433. In this landmark ruling, the Supreme Court clarified that additions in assessments under Section 153A must be based on incriminating evidence uncovered specifically during the search.

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Conversely, the CIT(A) had argued that Section 153A empowers the AO to reassess cases involving search actions under Section 132(1) regardless of the presence of incriminating material.

However, the ITAT found this position inconsistent with the Supreme Court’s directive in Abhisar Buildwell, which restricts additions in Section 153A assessments to cases involving such materials.

The two member bench comprising Sudhir Pareek(Judicial Member) and Shamim Yahya(Accountant Member) quashed the assessment order due to the absence of incriminating evidence obtained in the search, rendering further examination of merits unnecessary.

In conclusion the assessee’s appeal was partly allowed.

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